Business combination, as many modern analysts believe, is a global trend. It is believed that in the coming decades, most companies in the world (which in the aggregate volume will account for about 70-75% of the planet’s GDP) will consolidate within just a few hundred transnational holdings. According to economists, Russian business will also affect this trend.
There are two main mechanisms within which the merger of enterprises can take place. In the first, we can talk about changes in the legal status of a company that arise as a result of mergers or acquisitions. In this case, a controlling block of shares or a predominant share in the authorized capital transfers from one group of persons to another; the brand name (and sometimes the industry) where the company operates is also subject to change. The most common types of associations of enterprises of this category today are concerns and holdings. Among the obsolete, but having great historical significance for Russia - trusts, cartels and syndicates.
Another mechanism, which also fits the concept of "business combination", in turn, is not associated with a change in their legal status. It involves the consolidation of an associative type - with the aim of exchanging businessmen or state managers (if we are talking about state-owned companies) experience, jointly solving urgent problems, developing new perspectives by combining knowledge and resources. The main types of associations of enterprises of this type today are associations and unions.
Before exploring the features of each of the consolidation mechanisms of companies, we will examine an aspect that reflects the actual expediency of the centripetal trends in question.
Why do enterprises unite?
Among economists, there is an opinion that small enterprises are somehow expanding their presence in the market. At some point, the company reaches a level in its development where further business expansion is possible either only by absorbing other businesses (most often competitors), or by combining with them in one form or another. Of course, an option is possible and very likely when the business itself will be absorbed.
On average, the company has been operating for about 3-5 years before the question arises about the merger procedures. The need for consolidation may also arise due to market circumstances. As a rule, this state of affairs is characteristic of periods of crisis (both economic and political in nature).
A business combination is a process that in most cases benefits each of the entities involved in it. The main advantages of business consolidation can be manifested in the following.
First of all, the united companies, as a rule, form a certain commonality of databases: customers, suppliers, partners. This almost always increases the revenue of each of the firms making up the association.
Secondly, companies, as a rule, record cost reductions in many areas - for example, in relations with the same suppliers. It often happens that a company, having received new counterparties, discovers that the goods or services they supply are cheaper than those received from previous partners. Also, the costs associated with brand positioning and advertising are usually reduced.
Thirdly, firms combine not only information, but also financial resources. This allows, first of all, to count on attracting more qualified specialists to the staff. Personnel is the most important component of the success of any business. Likewise, more financial opportunities - better equipment. This is especially important when there is an association of industrial enterprises - their main competitive advantage lies in the technologies used in the production of products.
We learned about why businesses need consolidation. Now, in detail, we will consider the forms of business combinations that we have identified as the most common in Russia.
Let's start with the concerns. This type of business consolidation implies a rather large independence of participants. As a rule, the interaction of companies is limited to the exchange of technologies (patents, licenses), in some cases, financial management mechanisms are unified.
The concern can be a combination of enterprises of the same industry, or consolidation within the framework of firms operating in rather dissimilar segments. But as a rule, its participants are still somehow interconnected. For example, within the framework of a concern, companies can combine in one production chain - suppliers of raw materials, processing plants, as well as factories that produce the final product.
As a rule, companies forming a concern (examples from Russian business confirm this in many respects) remain legally independent. A controlling stake in each or a predominant share in the authorized capital is usually not owned by the parent structure. And this is the main difference between concerns and holdings (we will consider their features a bit later). However, as we said above, financial flow management, as well as strategic management decisions are applied at the level of the senior management of the association. In this regard, the legal independence of companies, according to many experts, may not play a significant role in terms of the development of firms as separate business units.
Organizations belonging to one concern may be included in such types of business combinations as associations or unions. This does not affect their legal status and management mechanisms. But they do not have the right to be part of other concerns. Otherwise, there may be discrepancies with the strategic priorities of the consolidated business structure.
Concerns in Russia
How does this type of association function as a concern in Russia? Examples of businesses consolidating under this form, of course, are found in very large numbers in the Russian Federation.
There are, in particular, state industry concerns. Such experts include one of the largest and most famous Russian companies in the world - Gazprom. It often happens that a concern is an association of state enterprises in the defense industry.
The term "concern" in Russia and in the world
The question arises as to whether the term “concern” has the same meaning in our country and abroad. It all depends on the particular state. Let's look at a few examples. In particular, such companies as Volkswagen, Siemens, Allianz are commonly called concerns in Russia. In turn, in the country of origin - Germany - these organizations are called exactly the same, Konzern. If, in turn, we are talking about companies such as General Motors, or Boeing, which have American registration, then in Russia they are also considered to be concerns. But in the USA, no. There they are called "public company".
In some cases, the largest US companies in Russia among the Russian media or in specialized literature are called concerns only in order not to inadvertently mislead the reader. The fact is that many American companies, for example, the automotive giant Chrysler, are nothing more than an LLC ( Limited Liability Corporation in English ). The Russian citizen will never believe that LLC can grow on such a scale: in our understanding, this is a very medium-sized company. It is easier for him to realize that such an enterprise is a concern.
As we said above, the most common forms of business combination in Russia are also represented by holdings. This type of business consolidation, experts say, is very close to concerns (moreover, some economists identify both terms). What are the distinguishing features of holdings? And what, in turn, is common between them and concerns?
The most important sign of holding is that it is an association of organizations, enterprises, under the condition that the ownership of the head structure of a controlling stake in all firms is concentrated. While it is permissible in concerns (although not always the case) that the predominant share in the business belongs to the founders of the company or to outside shareholders.
For most of the features (the purpose of creation, type of management, etc.), the holdings as a whole are very close to concerns. They can also be associations within one or several sectors, and be a consolidating structure for businesses in terms of the organization of the production chain. As in the case of concerns, the enterprises included in the holding, as a rule, have legal independence, conduct, as a whole, independent economic activity.
But the key managerial decisions are made by the head structure. Her core competencies are as follows.
Firstly, she develops the conceptual framework for the development of the entire association. He thinks out a strategy for attracting and distributing investments and profits. Many experts believe that financial management is the main component of the holding’s head structure. Funds can be distributed, including in the framework of internal loans.
Secondly, the head structure of the holding is usually responsible for key management decisions at the management level of the companies included in the association.
Thirdly, the parent organization represents the interests of all its subsidiaries in the intersectoral space and in foreign markets.
In many holdings, by the way, there are restrictions on the ownership of shares of the parent structure for member companies of the association (as well as for managers and owners of shares).
Let us now consider the historical forms of association of organizations that played a prominent role in the economy of Tsarist Russia and the USSR.
A cartel is a structure that consolidates the businesses of one industry. The purpose of creating such forms of associations is to conduct joint activities in the sales aspect (less commonly, production processes). As part of cartels, it was usually easier for companies to sell manufactured goods through agreements on prices, quotas, and the use of sales channels that were shared with other businesses. Cartel companies retained full legal and economic independence.
If the activities of companies consolidating within the framework of cartels focused on sales channels as such (rather than on the production side), then entrepreneurs could agree to create a syndicate - a single structure for all businesses responsible for selling products at uniform prices and channels.
That is, the function of individual firms was limited to production. As a rule, they were engaged in the sale of a syndicate exclusively created by them. In some cases, the sales structure was not created separately, but was formed on the basis of the resources of one of the companies included in the association.
If cartels and syndicates were usually created in order to optimize the channels for selling goods, then trusts were in order to consolidate efforts within the production part (but in many cases sales units were also combined). Associations of this type were formed by businesses that did not preserve, unlike cartels and syndicates, legal and economic independence. As a rule, the head structure of the trust was created (approximately the same as in the holding). But there were precedents when firms signed mergers and acquisitions. Usually, trusts meant the consolidation of all production processes that are part of a single structure of firms, as well as the resources related to them. Often, participants from such communities became businesses from various industries. In them, just as it happens in the concerns considered above, a production chain was built. As a rule, in trusts there was an institution of joint ownership of those resources that were involved in the release of goods (as well as for finished products).
Cartels and syndicates at the same time were more characteristic of the times of Tsarist Russia (when the institution of private entrepreneurship existed without significant restrictions). And the second was much more. Cartels were, I must say, quite rare. In the USSR (until the time when commercial relations were banned) trusts were more popular.
Associations and Unions
Having considered current and historical forms of company consolidation within the framework of mergers and acquisitions, we will consider the second type of business associations - associations and unions. We immediately note the fact that these two terms, as a rule, can be identified. Just "association" - this means "union", "union", only in a foreign manner. Businesses themselves determine how to name themselves within the framework of a consolidated structure.
Associations and unions are associations of organizations (private or public) not with the aim of consolidating financial and managerial resources, but to protect interests and mutual coordination of various areas of work. Almost always, these are non-profit type structures. That is, if we talk about the legal status - this is usually an NGO. Firms within an association or union retain absolute legal and economic independence.
The scale of these kinds of organizations can be very different. For example, the Association of restaurateurs and hosters. Many people hear such an association - the "Union of Industrialists and Entrepreneurs." There are international and political structures (the purpose of which is to establish business ties). Among these are the Customs Union.